Deficit Chicken Littles Miss Another Doomsday Deadline

China is dumping Treasuries and interest rates remain
low. Will the doomsayers see the error of their
ways?

In a post titled “China
Cuts US Treasury Holdings By Record Amount,” Mike Norman
makes the excellent observation that while China is moving its
money out of Treasuries, interest rates are hitting record
lows. In other words, the sky still isn’t falling.
So, Mike wonders, “Where is the Debt/Doomsday crowd?” He
rightly concludes that “They’re nowhere to be found because they
can’t explain this. This is a ‘gut punch’ to them. Their whole
theory is out the window. They just don’t understand or
don’t want to understand, that interest rates are set by the
Fed…PERIOD!!!”

Also of note: Nikkei QUICK News reports
that the #309 10-year bond, the current benchmark, has traded to
a yield of 0.920% Tuesday morning, down 2.5 basis points from
yesterday’s close. This is the lowest yield since August 13,
2003. U.S. Treasuries traded higher overnight and press articles
suggest that China is finding the safety of JGBs attractive.

This, from a country with a debt-to-GDP ratio of 210%!

I know what the deficit hawks are now saying — it is only a
matter of time! Yes, and doom-merchants have been predicting the
end of the world forever and the Y2K bugs were predicting it then
and the gold bugs were predicting Weimar-style hyperinflation by
the end of 2009 and… We can just let the “it is only a matter of
time” brigade worry themselves sick and leave us in peace.

Marshall Auerback is a Senior Fellow at the
Roosevelt Institute, and a market analyst and commentator.